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Mitesh Kumar J Sha Vs The State Of Karnataka & Ors: A Mere Breach Of Contract Does Not Constitute An Offence Of Cheating; Criminal Proceedings Must Not Be Used As Instruments Of Harassment

Prahalad B ,
  28 October 2021       Share Bookmark

Court :
Supreme Court
Brief :

Citation :
Criminal Appeal No. 1285 of 2021

Date of Judgement:
26 October 2021

Coram:
Justice Abdul Nazeer
Justice Krishna Murari

Parties:
Appellant – Mitesh Kumar J Sha
Respondent – The State of Karnataka

Subject

A civil suit must not be given a colour of criminal suit as a tool of harassment. A breach of contract cannot be termed as a criminal offence.

Legal Provisions

  • Section 406 of the Indian Penal Code – Punishment for criminal breach of trust.
  • Section 419 of the Indian Penal Code – Punishment for cheating by personation.
  • Section 420 of the Indian Penal Code - Cheating and dishonestly inducing delivery of property.
  • Section 482 of Code of Criminal Procedure, 1973 - Saving of inherent power of High Court.

Overview

  • The respondent had entered into a Joint Development Agreement (JDA) for development of a property with appellant. The agreement also contained their respective shares of the area. A General Power of Attorney (GPA) was also executed on the same day.
  • Further, a Memorandum of Understanding (MoU) was entered into by the parties, whereby the appellant company was authorised to sell certain square feet of the property. This MoU was entered into by the respondent for the purpose of settling the loan dues to another entity.
  • The dispute was that the respondent had authorised him verbally to sell additional flats than the originally stipulated flats towards the amount due towards the other entity by the respondent. Acting on the same, the appellant had executed sale deeds for the additional flats. The respondent, citing reasons that the appellant had not adhered to the JDA, revoked the GPA.
  • The Appellant invoked the arbitration clause and prayed for injunction to prohibit the respondent to alienate the properties in dispute. On the other hand, the respondent filed a police complaint claiming that the respondent had not executed the GPA in favour of the appellant, hence the appellant could not have sold it to other parties and the flats sold were belonging to the respondents. An FIR was registered against the appellants for offences under Section 406, 419 and 420 of IPC.
  • The appellant approached the High Court invoking Section 482 of CrPC for quashing the FIR. The High Court held that as the allegation was that the appellant had acted in violation of the MoU, the court could not interfere with the same. Aggrieved by this order, the appellant approached this court.
  • The appellant contended that the respondent was trying to colour a civil suit as a criminal suit and necessary ingredients of the alleged offence are not satisfied. It was also contended that since the authorization by the appellant to sell additional flats were given verbally, the respondent was trying to disguise the incident as a criminal offence.
  • The respondents contended that since the appellant had acted in violation of the terms by selling more flats more than the stipulated quantity; they have lodged a complaint for cheating. It was also further contended that the cause of action in criminal and the civil suit instituted were different, liability of breach of agreement and liability of offence under the IPC. The additional sale made were not authorised and the appellant possessed criminal intention, which was indictive from their action.

Issue

  • Whether there were necessary ingredients of offences under Sections 406, 419 and 420 were prima facie proved?
  • Whether sale of additional flats amounts to a breach of contract or an offence of cheating?

Judgement Analysis

  • The court first examined whether the necessary ingredients were proved/shown. The court observed that the sections established dishonest intention as condition for a prima facie case to be established. Hence, the court deemed necessary that it should examine whether there was a dishonest intention.
  • After careful examination of the facts, the court held that there was no prima facie case of dishonest intention as the appellant was the first to invoke the arbitration after the GPA was revoked by the respondent.
  • The court agreed with the respondent contention that from the same fact both criminal as well as civil suit can arise. However, the court pointed out that what should be decided whether necessary ingredients of the alleged offence are prima facie proved. The court observing the facts of the case held that there was no convincing case made out regarding the offence of cheating or criminal breach of trust. The court’s invention was needed as there was no case to show the prima facie dishonest intention of the appellant.
  • This court held that the High Court has erred in its order and it felt that a civil dispute was given a colour of criminal dispute and set aside the order of the High Court and quashed the FIR lodged against the appellant.

Conclusion

Section 482 of CrPC is established to prevent the abuse of process of the court. Although such powers are to be used sparingly, it should be used in cases where a civil dispute is coloured as a criminal dispute and are used as a tool of harassment. Even in the recent case, this court held in Randheer Singh V. The State of UP (2021) that the courts should make sure that a criminal proceeding is not used as a tool of harassment.

Click here to download the original copy of the judgement

Questions:
1. Which section under the Indian Penal Code defines criminal breach of trust?
2. Which section confers the power on High Courts to quash an FIR?

 
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